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Tuesday, April 10, 2012

Strata Financial Reports: Admin and Sinking Funds

Owners of strata titled apartments can manage their buildings themselves or they can contract the job out to a professional strata management firm.

We use a professional strata firm for ours. Firstly, it limits our own personal liability because the professional Strata Manager has insurance. Secondly, all those persistent, annoying little things that owners and tenants whinge about on a daily basis can get really distracting and it's more efficient to let a professional firm manage those issues. They do charge an exorbitant amount to manage the building but you get what you pay for most of the time.

There have been a few ongoing issues that haven't been resolved. Executive Committee(EC) members are all volunteers and everyone needs to contribute their own personal time to review documents, quotes and correspondences. These recent few years, our EC members have been very determined to try and build up some savings so we've taken on plenty of the work ourselves according to our abilities. I'm the Treasurer for ours - the EC nominates me every single year for that role and I don't mind, I like knowing what is happening with our finances.

Over an Easter dinner, the topic of strata meetings arose with some friends. They were discussing the inefficiencies of their strata meetings and how one owner held over 100 proxies which meant they controlled the majority vote regardless of the attendees views and opinions at the meeting. Despite knowing this, the attendees at the meeting were still out of control with many impotently outraged. They knew they were powerless, they were angry but they were helpless due to their lack of voting power. That's one of the drawbacks with owning a strata titled property. You have one vote but it's the vote of the majority that counts.

There are many types of reports that your stata manager can compile for you from their software package. They can compile cash reports, asset reports, debtor reports, creditor reports and so forth however, the two main ones are:

1. Balance Sheet at a certain date (eg: today or yesterday)
2. Income and Expenditure Statement for a certain period (eg: month or quarter, half year or annually)

(Note that prepaid levies are considered liabilities but if they are unspent, they eventually become part of the Admin Fund so I've lumped them in with the Admin Fund).

Financial Trends

March 2008 had net assets of $17,607.95 and the same March month in 2012 had net assets of $48,095.76. That's a 273% increase in cash in our accounts. So our savings have been increasing at an average growth rate of 68.25% per annum since March 2008.

It's been a frustrating journey to get to this point. We collect roughly just over $70k in strata levies per annum but the expenses involved in running a large building is phenomenal. Plumbers overcharging at $360/hour, cleaners overcharging at $16k per annum etc. Service providers overcharge on the basis that no-one really cares what is happening with their apartments. They were definitely overcharging us because we've replaced them with vendors supplying the equivalent service but several thousands of dollars cheaper.

We've sliced through those costs by asking our strata manager to get quotes from competitors. Every single step forward requires a majority vote along every single step:

* Raise an agenda
* Get the EC voting
* Once majority vote is achieved, notify the strata manager of impending action required
* Review the three quotes' pros/cons with a comparison against existing vendors
* Vote again
* Notify strata manager of outcome
* Give notice to outgoing vendors that we are terminating their contract
* Finally the new vendor is recruited and cost savings start to trickle in

It's a slow process and can take a few months before each change is implemented. The other EC members have been fantastic with volunteering their time and expertise.

Going Green In The Future

The future is all about solar panels, recycled grey water tanks and energy efficiency. I'd like to implement several things for the apartment block in the future. Going green is the future. Not only will it save money, it will be better for the environment.

If we can build up our Admin and Sinking Funds then we can make capital improvements instead of providing band-aid solutions and band-aid improvements. I like looking at things in the long term. More visionary rather than short term. It can be very satisfying to see plans falling into place and becoming reality.

1 comment:

Great post; I really learned a lot from it. And I agree with your last point, going green is the future. I hope many more Strata committees apply the same ideologies that you have. #strata management services

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